Equities settled back in last week after a rocky start to the New Year.
The market seemed to relax somewhat last week after sputtering in week one. The consumer data was positive overall last week as Consumer Credit for November was stronger than expected and Redbook Sales inched higher on a year-over-year basis. It’s early in 4th quarter earnings season, but the big banks mostly exceeded expectations. Jobless Claims continue to be well under the level typically seen just prior to most recessions, as Claims came in at 202,000 last week, while the typical pre-recessionary levels are higher than 300,0000. However, most investors focused last week on the inflationary data.
The Consumer Price Index inched higher than expected for December (+0.3%).
In contrast, the Producer Price Index moved lower than expected (-0.1%). In our view, inflation has normalized from the anomalies of the COVID era and an overall CPI of 3.4% is close to the historical average. The key moving forward is the health of the consumer. With a stable job market, average inflation, and stable interest rates, one would expect consumer behavior to be balanced. Futures on the first Fed rate cut show 68% for March and similar for the second cut in May (66%). Going forward, earnings and the consumer will tell the tale on the possibility of recession.
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